In Parting Shot, Government Paints Apple as Amazon Copycat

By Andrew Albanese
|

Jun 19, 2013

On the final day of testimony in Apple’s e-book price-fixing trial, U.S. attorneys looked to poke holes in Apple’s claim to be an innovator in the e-book space. With the director of Apple’s iBookstore in the U.S. Robert MacDonald on the stand, U.S. attorney Lawrence Buterman painted Apple’s iBookstore as a copycat of other digital book efforts—including Amazon’s.

In opening his testimony, MacDonald said he estimated Apple’s share of the U.S. e-book market to be between 17% and 20%, conflicting with Apple senior vice president Eddy Cue’s testimony that Apple had a 25% stake. “Do you disagree with Mr.Cue?” Buterman asked? “I do, in this context,” MacDonald replied.

With time running short for each side to finish presenting their cases, Buterman quickly set out to establish his main points: that Apple did not bring the innovation it claims to the e-book market, and that the Most Favored Nation clause said to be at the heart of the government’s conspiracy theory was never intended to be anything more than a mechanism to get publishers to switch their e-book businesses to the agency model.

In terms of innovation, MacDonald conceded that e-books were already being read on Apple devices, mostly the iPhone and the iPod Touch, well before Apple ever decided to get into the e-book business, via apps—including popular apps from Stanza, and Fictionwise, in addition to Amazon. MacDonald also conceded Apple had no plans to keep e-reader apps from the iPad.

Buterman then honed in on MacDonald’s direct testimony, in which MacDonald offered a list of things that Apple “introduced or improved” with the iBooks app and the iBookstore. Nearly all the points raised by MacDonald, Buterman argued, had been done already—many by Amazon, including font changes, backlighting, even Apple’s signature page curl was already available in the Kindle for iPad app. In fact, Buterman pointed to notes from an Apple engineer’s meeting with Steve Jobs prior to the iBookstore release in which Jobs praised Amazon’s Kindle app and said it was worthy of “study.”

Specifically, Jobs liked the Georgia font Amazon used, and the Sepia background—both of which were added to the iBooks app. Buterman also noted that the Kindle app made color and multimedia available.

Later, the conversation turned to iBooks Author, Apple’s self-publishing tool, which MacDonald maintained helped "transform" publishing. MacDonald said he was unaware of the specifics of the author tools from firms like Smashwords and Lulu.com that preceded iBooks Author, and held firm to that claim. But Buterman eventually got MacDonald to admit that there were only a modest number of iBooks Author-created books, books that can only be sold in Apple’s iBookstore—about 21,000. Buterman pressed—did MacDonald believe that 21,000 books out 1.8 million titles in an e-bookstore with a 20% market share really transform publishing?

“Would you agree that’s a slight exaggeration? Buterman asked?

“I don’t agree,” MacDonald responded.

On the subject of the MFN, Buterman probed whether Apple actually enforced it. MacDonald said Apple generally has not. Instead, the company “audits” about 300 titles a week to look for anything “out of whack” but,it has not deemed MFN enforcement to be worth the resources. That's because, Buterman insisted, once the MFN succeeded in its mission—to force publishers to move their businesses to the agency model—there was no longer any interest in the MFN.

Under redirect, MacDonald pushed back, saying few books of those audited were ever significantly out of line price-wise, and when they were, Apple would call or e-mail the publishers. He said Apple was also in constant contact with publishers, and constantly pushed for lower prices when they noticed books were not selling.

As to the innovation questions, Apple attorneys pointed to the development of “fixed layout” for illustrated books, and showed a page from Ian Falconer’s Olivia as an example. Had it not been for the iBookstore, there would have been no incentive for Apple to develop such technology, Apple attorneys argued.

The day began with Apple expert Michele Burtis finishing up her testimony, and ended with another brief expert examination, University of Chicago economist Kevin Murphy, who testified that Apple was only acting in its own interests by negotiating an MFN.

Apple officially rested its case at 2:26 p.m., and at 2:33 p.m. following a brief discussion of procedural issues, Cote closed the record. Then, in the final moments, Cote uttered the words Apple attorneys surely longed to hear, saying the issues over the course of the trial “have somewhat shifted.”

For Apple attorneys, that observation came in welcome contrast to Cote’s much-discussed pre-trial “tentative view,” in which she said the government would likely prove its case. Asked if that comment bolstered hopes that Apple had succeeded in reversing the judge’s initial view of the case, a source close to Apple’s defense team smiled broadly, saying “I think we’re good.”

In thanking the attorneys for their hard work, Cote said both sides should be proud of their work. “It was a privilege to preside over this trial,” Cote said. “I worked hard and thought I learned a lot.” She added that she was “deeply gratified” for the help she received in understanding the issues.

Closing arguments are scheduled to take place today, beginning at 9:30 a.m. Following summations, a verdict and written opinion could come within weeks, but in an e-mail, a court official said a good rule of thumb would be closer to two months.

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